VA borrowers hit hard by Hurricane Sandy may get relief from financial stresses. Military members and other victims of the storm in the Eastern United States may be wondering what could happen to their mortgages if they are temporarily unable to pay them.

Borrowers may be asking:

• What if I default for storm-related reasons?
• Do I have to pay late fees if I can’t make my payments on time due to the storm?
• Can I prevent foreclosure if the storm puts me in serious financial straits?

VA loans may be protected, especially if a borrower’s financial situation worsens in the wake of a hurricane or other declared disaster.

The VA’s Request to Lenders: Offer Forbearance for Sandy Victims or Modify Veterans’ Loans

Generally, the VA wants veterans to keep their homes and minimize defaults. The VA encourages servicers to help borrowers who are affected by natural disasters. When natural disasters happen, they can strain the family budget. Often, making mortgage payments is most difficult as a result of some disasters. For example, when a disaster renders a home unsafe to live in, the borrower may have to find another home. Two house payments can stress most budgets.

Because of difficulties like this, the VA requests that mortgage servicers offer forbearance and even modify veterans’ loans if appropriate. Title 38 CFR 36.4315 states, “The terms of any guaranteed loan may be modified by written agreement between the holder and the borrower, without prior approval of the Secretary.”  This means veterans and lenders can work out loan modification agreements together per VA guidelines without having to ask permission from the VA first.  Conditions and circumstances do apply.  A disaster like Sandy most likely won’t happen in the same place twice, and it’s an example of a circumstance where VA loan modification could be a good option. Homeowner’s must contact loan servicers with forbearance or modification requests. If you can’t make house payments due to Hurricane Sandy, call your servicer to discuss your options.

The VA’s Request to Mortgage Servicers: Waive Late Fees for Veterans Hit by Sandy

All VA loan servicers are asked to waive late fees in disaster-declared areas, and the VA believes that many will comply.  Also, the Code of Federal Regulations (CFR) Title 38 Section 36.4311 allows for any prepayments that a borrower made to pay down principal before the disaster to be used to cure or prevent default.  Prepayments are made on top of scheduled mortgage payments and can be used to shrink the loan balance or principal. VA borrowers can make unlimited prepayments without penalty. Those who can’t pay their loans because of the storm may ask their loan servicers to use their prepayments toward mortgage amounts due. When a lender and borrower agree to apply prepayments this way, the borrower’s principal will go up relative to the amount used.

VA Loan Foreclosure can be Prevented if Servicers use 90-day Moratorium

Finally, the VA urges holders and servicers to exercise a 90-day moratorium on initiating VA loan foreclosures following Hurricane Sandy.  Servicers that observe the moratorium may be giving borrowers a chance to catch up and prevent foreclosures within 90 days following Sandy’s strike.

For more on veterans’ loans, contact a dedicated VA lender.